Diversity Matters

Companies that include more women at the top levels of leadership tend to outperform those that don’t. There has been a range of studies in recent years - McKinsey & Company’s annual ‘Women Matter’ studies over 9 years have shown a positive correlation. In 2013, it was reported that companies with top-quartile representation of women on boards had 47% higher return on equity and 55% higher earnings before interest and tax on average, than those without any woman on their boards, across various industries. With a growing female talent pool coming out of schools and universities, and with more consumer power in the hands of women, companies who fail to recruit and retain women—and ensure they have a pathway to leadership positions—undermine their long-term competitiveness.

Why diversity works?

It allows companies to better leverage and draw on the full range of best talent available to oversee, govern and advise companies in an era of startling change and unprecedented challenges, allowing them to compete more effectively.

It is not just about fairness as women represent half the global talent pool, but to ensure that the best minds, regardless of gender, are brought together to address complex business challenges. Companies can no longer afford to under-utilize female talent. The competition for talent is global, and talent matters to bottom-line result. Firms with gender-diverse boards tend to foster a diverse workplace culture resulting in prime position to attract talent and compete effectively in an increasingly globalized and diverse market.

Diversity is key to making boards more consistently effective, acutely attuned and broadly capable. It leads to better board effectiveness and corporate governance as women bring different perspectives and voices to the table, to the debate and to the decisions as a result of better monitoring, improved decision-making, formulation of more balance policies.

‘Group think’ is any board’s worst enemy, as homogeneity inhibits better decision-making from occurring due to the lack of diversity in the range of experience and background. Shareholders and institutional investors are also putting greater emphasis on the value of women on their boards. The International Corporate Governance Framework (ICGN), comprising institutional investors with more US$18 trillion in assets under management, and countless other similar investors have included gender diversity as an indicator among their investment criteria.

Where are we?

Female representation on corporate boards globally has increased noticeably over the past several years across several markets and market capitalizations, irrespective of the presence of gender diversity quotas. Markets with mandatory quotas generally have higher female board representation than those without quotas.In the United States, large capital firms have the highest proportion of women on boards and the largest increases in gender diversity over the seven-year period analyzed (2008 to 2014). The proportion of new board nominees that are women at U.S. firms is at an all-time high in 2014. The percentage of new female nominees has almost doubled in the past seven-years at U.S. large capital companies.

Room for improvementHowever, 2014 still reflected a continued scarcity of female board chairs and executive directors on European boards.

In the recent AsianInvestor 2nd Women in Asset Management forum in Hong Kong, new data announced showed women are far better presented at asset managers in key Asian financial centres than they are in the US, but with significant under-representation at senior levels. Morningstar found that there were 20% female managers running regional and single Asian equities and fixed income funds, compared to less than 10% women managing US open-ended funds. Their data shows that there was a more balanced representation of women at the analyst level, but not at the CIO/head of equities level, where women made up less than 30% of the team.

Where should we beOur 2014 study shows that while uneven, the path towards greater board diversity is steadily advancing. Globally, we expect that a number of countries will achieve in the next 10 years what European boards have achieved since 2004.

Key Takeaways

Every company and its culture is unique, which makes a 'one-size-fits-all' solution the least scalable option. Hence, not every board must follow the exact same route nor advance at the same pace to diversity.

An inclusive board must be led by key board chairs, which increases the chances of success dramatically and continued progress can be achieved with the right determination at the top.

For board room and C-suite talent evaluation, we must look beyond candidate's past experience and achievements to analytically assess a leader's potential like how they are likely to succeed in roles they will be ascending to.

In developing/emerging markets, where the number of qualified female candidates working in traditional business settings will likely be insufficient, adopting a sourcing strategy beyond traditional talent base by looking beyond the boundaries of function, geography and background can be highly effective towards achieving desired diversity without compromise.

Talent pipelining is key to achieving diversity, this means shifting from a reactive approach to a proactive one in building talent strategy. Execution fuelled by visibility and analysis will be crucial in managing internal and external candidate populations.